REACTING TO LITIGATION – AN OPPORTUNITY
| The Sheriff arrives at your door, bringing greetings from the courthouse far away. You glance at the documents with a sinking feeling. You are being sued. This is never a good sign. The best possible result will be to spend a lot of money to prove your innocence. |
There is a natural tendency to simply put the documents on your desk. You can read them later. The lawsuit is not going anywhere.
Then you realize you have 45 days to respond. You let the document sit for a few more days. Before long, you have waited a month, and finally, you send the documents to Risk Retention Services.
You have just made a cardinal error. While you will not be held in contempt, and will not waive any defenses, you have lost the opportunity to move the action to the United States federal court.
The United States district courts are found all over the United States, and cover large geographic areas. They have jurisdiction over U.S. federal laws, federal crimes and civil lawsuits.
If none of the defendants are from the “local court” and the plaintiff resides in that state, you may be able to move the lawsuit from state to federal court.
The requirements are that the parties be from different states, and the amount in controversy exceeds $75,000. It is a rare case where the plaintiff’s attorney is not seeking over $75,000, so the question will come down to diversity of citizenship.
There are several advantages to removal. First, plaintiff lawyers often “forum shop” to find the best local court likely to bring in a plaintiff’s verdict. Perhaps this will be a state court located in a city center with a large union population. Perhaps this will be the local state court, where the judge is the next-door neighbor of the plaintiff or his lawyer. Either way, the plaintiff is going to seek the best possible courthouse for his lawsuit.
In general, federal courts provide an even playing field. It covers a very large geographic area, eliminating the prejudices of an urban population. Its judges are appointed for life, and they can therefore grant motions to dismiss without fear of reprisal from the trial lawyers (plaintiff) who fund their campaign or their reappointment. Federal courts have attorney law-clerks, who actually read the motions and perform legal research (which is impossible in the chronically understaffed state court systems).
The federal courts often view scheduling orders as orders – not suggestions – so cases move forward more quickly (which substantially reduces litigation costs).
The federal courts employ an expert standard which requires that an expert be qualified, and use the scientific method before being allowed to testimony – and often actually enforce this rule. State courts are much more likely to let everything in and let the jury decide what is (or is not) junk science).
Thus, there is a natural knee-jerk reaction to remove. But the decision cannot be that easy.
Perhaps the accident occurred in a very conservative county. Perhaps investigation has shown that a motion to dismiss is unlikely. In this case, the potential jury will be better in state court than in the broader federal court (which will include liberal counties). It may make more sense to leave the case in state court.
Or, perhaps you are in California, where the federal judiciary and Ninth Circuit Court of Appeals are notoriously liberal.
The important thing to take away is that a reasoned decision on where you will fight your lawsuit can have a significant impact on the cost of the defense, as well as the potential result.
However, if you do not remove to federal court within 30 days, you waive your right to remove. If you file on the 31st day, the court cannot accept jurisdiction.
There may be exceptions to this rule. For example, where the plaintiff has filed against a local defendant as well as an out of state defendant. In that case, you cannot remove (no complete diversity). Yet, if the local defendant either settles or is dismissed, complete diversity now exists. You will have 30 days from the date of the dismissal to remove, provided that the removal takes place within one year of the filing of the initial complaint.
The point, however, is that while there are complicated exceptions and rules, you should never sit on a complaint. When the sheriff shows up, or if you get a complaint in the mail, immediately turn it over to Retention Services so that counsel can be obtained. An immediate review of the propriety of removing to federal court will be undertaken.
COURT MEDIATION RULES CHANGING
Courts nationwide have long recognized that most civil lawsuits do not result in a trial. Indeed, over 97 percent of all lawsuits filed last year resulted in a settlement or resolution short of trial. Still, many parties insist that they want to try the case. Judges seem to know better.
Virtually all federal courts as well as state courts require mediation before assigning a trial date. After all, there is no sense in filling up a calendar with trials if the case is going to settle anyway.
Unfortunately, many parties simply sent pro-forma representatives, without real authority to settle, because a strategic decision had been made to not resolve the matter at all.
Many courts, exemplified by the Florida state court system, now have changed their rules. They require that the party, and the attorney, file a certification naming the person who will attend the mediation on their behalf, and certifying that the person who will attend, in person, is authorized to enter a binding settlement agreement. No more “let me call my boss” for these courts.
Of course, the courts miss the point entirely, and on many grounds. Firstly, mediation is an effective process if the amount of settlement is the open question. If the question is “how much” should we pay, a mediator can often bring the parties together. But if there is no liability, and the question is whether to pay, the mediator, and the mediation process, is simply not an effective method of resolving disputes.
Secondly, no matter who a company sends for mediation, there are many people that are relied on in making an effective decision. There is no question that an officer or director has authority to bind the company. However, the chief financial officer (how much cash do we have?) the litigation manager (how does the evidence look) and the board of directors (will I be supported) will all impact the decision maker. Whether you send the officer or director, an employee, or your litigation manager, and appoint him with binding authority, it is the rare individual who will make a settlement decision (particularly for meaningful dollars) without input from his management team and chain of command (up and down). Just because you have authority does not mean you throw your resources out the window and make decisions.
At Risk Retention Services, we have long held the belief that the party should be entitled to opt-out of mediation, as they are (for us) almost always an unnecessary expense with no real prospect of settlement. Rarely, at mediation, does the plaintiff accept a $500 offer (but it does happen on the morning of trial). But if you are not going to make a substantial offer, why waste everybody’s time. The attitude that “just because someone sues you means that you should offer a lot of money” makes a mockery of a justice system which is to apply … justice.
ACTIVITY REPORT
| Over the past quarter RRS closed 83 claims including five lawsuits and 78 non-litigated matters. |
Three lawsuits (controlled by Risk Retention Services) resulted in complete dismissal without any payment to the plaintiff or his lawyers. Two lawsuits were controlled by insurers. Both settled (Average insurer settlement $23,000).
Of the 78 non-litigated matters, all were controlled by RRS. 40 of those matters were closed without any payment to the claimant. The other SIX claims were resolved through settlement for an average of $262.00 per settled claim. Using all claims, indemnity averaged $20.17 per claim.
CATASTROPHIC EVENTS CAN BE MANAGED
| Risk Retention Services has, over the years, branched into areas beyond products liability. It has found that there are some issues, however, that all types of business should prepare for (and then hope they never occur). |
A catastrophic event is one such area. For our purposes, a catastrophic event is an event that may result in numerous injuries or illnesses from a single cause. For example, in the food service business this could be an outbreak of salmonella originating at your place of business. In the manufacturing arena, there may be a defective batch of products, all in the market, and without a means of tracking the products for a recall.
In any of these cases, the most effective way of minimizing damages is to get out in front of the curve, and locate as many potential claimants as possible. Paying medical expenses (often there is no liability defense for a catastrophic event), is one way to satisfy many of the claimants, and may help minimize the potential for a large verdict against you down the road.
First, by aggressively locating and arranging to pay medical expenses, you are showing the victims that you care, are contrite, and are trying to make things right. People who are hurt and angry are often called … plaintiffs. Whereas, people who are hurt, but not angry, are called … return customers. Certainly some of these people may still sue, but it will be limited to the money-grubbers.
Second, by taking care of the claimants at the outset, you show the juries in the money-grubbing case that you are good caring folks that tried to do the right thing. That way, they will see the plaintiff for the money-grubbing pigs they are, as opposed to the poor innocent victims. (Apologies to the pigs, who are no doubt offended by the analogy of the money grubbing plaintiff to intelligent swine).
Third, by locating as many victims as possible, as quickly as possible, you minimize the “false” claims. Train & bus operators in Chicago are instructed their first duty is to lock the doors in the event of an accident. This prevents people that had no involvement in the incident from making a claim. Similarly, when you identify as many actual victims as possible at the outset, the fake claimants are easier to weed out.
In this regard, it is very important that as you locate the victims, you withhold certain key information. Claimants who were actually present will know the information and those that are trying to jump on the bandwagon will not.
Meritless claims, of course, should be denied and well-documented.
We had an occasion to work on a chemical spill at a water park. There were dozens of people exposed, a number of whom went by ambulance to a local hospital. The medical expenses were immediately paid, and certain key information was withheld in fielding calls. The owner of the water park personally went to the hospital to express his concern, and ensured that the ambulance bills were sent directly to his attention for payment. The victims were told where to send their medical bills for reimbursement.
Fortunately, none of the injured needed any more than emergency care (due, in large part to the swift, effective handling at the scene). Some were very upset at the time, but quickly calmed down. To date, not a single such victim has retained a lawyer or filed suit, and a number of “fake claims” were rooted out and denied.
Finally, for many businesses, “catastrophic event” coverage can be obtained for a very small additional charge. This insurance pays for the medical expenses of the victims of a catastrophic event – and it does not count as a claim for liability purposes. Thus, while an insurer pays for the catastrophic medical payments, without a specific claimant pursuing a claim for additional damages, there are no claims reported or reportable to the insurer for liability purposes. This can be very important at renewal time.
Talk to your agent/broker about the availability of catastrophic event insurance, and talk to Risk Retention Services about developing a plan for a catastrophic event. By being prepared for the event, your risk drops precipitously.
ELECTRONIC DISCOVERY HAS ARRIVED
In today’s world, fewer documents are being retained on paper, and more documents are being stored on computer network drives, personal computers, and even “Smart Phones.”
In the good old days, when men were men and women wore skirts, plaintiffs sought documents from corporations and, if they did not exist on paper that was the end of the inquiry. After all, if the documents do not exist, they do not exist. Then entered the computer, where nothing is ever, really deleted. Even if you think you have thrown a document away, it is still may be hidden somewhere on the computer, and can be retrieved by an ingenious hacker or a nosy plaintiff’s attorney.
Risk Retention Services has handled hundreds of lawsuits over the years, and in the past year have noticed more requests for electronic discovery than in the previous twenty years combined.
The risk of having your computer files searched increases with the absence of paper documents that a plaintiff’s attorney believes “must” exist. Surely, they think, you “must” have all of the incident reports for every incident over the past 20 years. You “must” have design documents for a product that was put into service 20 years ago. You “must” have documents showing “why” changes to policies or procedures were put into effect.
Under any of these circumstances, plaintiffs can (and do) seek authorization from courts to get into your computer. This causes a myriad of privacy and other problems. Not surprisingly, the courts have developed rules to address this new form of e-discovery.
First, the court needs to approve a word search that can be performed to identify those files that “might” be relevant. Of course, the same word for a product, event, or circumstance, could also bring up documents relating to accounting, billing, pricing, and other irrelevant or in some situations sensitive and private materials.
This requires an expert in language, as well as computers, to design the inquiry to generate the documents that are relevant, while protecting confidential information and weeding out irrelevant materials. The cost for this sort of inquiry, including the review of hundreds, thousands, tens of thousands or even more documents, can exceed the total attorney fees for the entire case.
This becomes particularly troublesome for the defendant who has produced literally all documents requested, and simply is not believed.
Courts have tremendous discretion in ordering who pays for such a computer inquiry. A growing nationwide trend is for courts to order the defendant company to pay for all costs and fees if the inquiry results in the production of documents and files that the defendant stated did not exist. On the other hand, most such courts have ordered that the plaintiff pay for the entire inquiry if no such documents are found.
These inquiries, of course, are in addition to requests for electronic files that are complied with. For example, instead of producing a paper incident report, it is appropriate to produce the electronic version of the report. But, how is anyone to know if you really produced everything? Establishing credibility with the court early in a case is critical to keeping
The overall discovery rules are unchanged. You must either produce or object to documents requested in discovery. You cannot hide electronic or paper documents pretending they do not exist to avoid the effort of looking for the document.
If everything has been turned over, the plaintiff and his computer guru will not find anything new. Realize that if the computer guru finds documents that you were intending to hide, they will not only get the documents, but you will likely pay for their efforts.
UPDATE FROM THE CRYPT
We talked in the last newsletter about how much more expensive, and less effective, a case can be prepared when proper controls are absent.
Since then we had two cases arise which illustrate the point perfectly. Both are in rural communities in the northwest and both involve similar products liability claims. One is a claim controlled by RRS and the other by an attorney the insurer hired. Damages are similar, theories of liability are similar and the numbers and types of witnesses are similar.
The RRS attorney has estimated that the case can be tried for a budget of $35,000. The insurer appointed attorney needs a $160,000 budget. Additionally, the RRS attorney has successfully tried several cases involving similar products and the other has not. And so it continues.
ACTIVITY REPORT
| Over the past quarter RRS closed 50 claims including five lawsuits and 45 non-litigated matters. |
All five lawsuits resulted in complete dismissals without any payment to the claimant (or their attorneys). One of those claims was controlled by an insurer, but the insurer allowed RRS to substantially control the litigation. The other cases were controlled by RRS and were dismissed on their merits.
Of the 45 non-litigated matters, all were controlled by RRS. 40 of those matters were closed without any payment to the claimant. The other five claims were resolved through settlement for an average of $3,250.00 per settled claim. Using all claims, indemnity averaged $361.11 per claim.
TALES FROM THE CRYPT
(Why Failure To Control Your Claims Will Kill Even The Un-Dead)
We have previously written about how an SIR and a hammer clause can help you maintain control over your claims. The first step toward an effective risk program is to minimize the risk in the first instance. That is, building a quality, safe product, employing best practices, and employing good customer service practices all lead to lower claims frequency. Notwithstanding, unless you decide to go out of business entirely, you cannot totally avoid claims. Indeed, in some respects, claims are a reflection of a successful business. The more you sell, the more chances you have of getting a claim.
In the renewal process a deductible policy often appears less expensive. After all with aggressive file maintenance, you should still expect to get good representation.
The reality is that unless you retain the legal right to control a claim, you lose the ability to select counsel, and the attorneys then believe they are beholden to the insurers, and not their client. No matter how aggressively we work on your behalf, trying to ensure that the attorneys are representing your interests, horror stories abound.
Paying the Lawyer and the Settlement
By selecting counsel, and controlling litigation, you get to select an experienced trial attorney who is working toward the trial and a successful verdict. RRS selected attorneys generally get a case to trial (in a products liability case) for approximately $50,000. This benchmark is a guidepost, but has been successfully achieved over the past couple of years in virtually every case, including, CA, the site of our first horror story.
A manufacturer of a certain product was sued in Los Angeles. Damages were, dripping wet, approximately $350,000. Liability was quite weak. There was a substantial likelihood that a defense verdict could be obtained. Unfortunately, the law firm in that case was a relatively large firm, and utilized inexperienced associates for much of the work (which was then re-done by the partner).
The insurer tried to control costs. Indeed, the lead attorney told an RRS litigation manager that he could not “believe that the insurance adjuster was questioning his bill, nobody has questioned his bill in 10 years.”
The RRS manager asked whether there was any basis for questioning the bill, to which the attorney replied “well, of course. Everyone knows you can’t make money at $200 per hour, so we double the time on the bill, but everyone knows this goes on. The adjuster has no business questioning my bills!”
One month before trial, the attorney submitted another bill and a budget to get the case through verdict. He had now billed $200,000, and his budget asserted that it would cost another $250,000 to get the case through trial. The case settled for $250,000.
You cannot blame an insurer for cutting its losses. Their attorney was saying that it would cost the same amount going forward — $250,000 – whether the case settled, or the case was tried (to a defense verdict). But, by settling, the insurer eliminated the risk of an adverse verdict.
Of course, the attorney had already billed and been paid $200,000, so the attorney successfully got paid without the stress of a trial.
Had the appropriate attorney been hired and controlled, the question would have been whether to try the case for $10-$20,000, or settle for $250,000. The math works very differently with a properly managed file – and you can only manage what you control.
Where the attorney and his firm are hired by the insurer, you cannot control rates, billing practices, or competence. But, in the end, you do pay the bill.
Paying the Incompetent Lawyer
A lawyer is nothing without competence and credibility. This is why it is so important that the attorney retained be local (so the judge knows the attorney) and that the attorney retained has trial experience. This way when an issue comes up he does not learn, for the first time, the basic law much less the nuances.
We always insist that attorneys only assert defenses that can be supported by the evidence or the law. This way, the attorney will always have “truth and justice” on their side. Also, the attorney can say that if they do not see the evidence, they do not assert a fact as being true.
But part of this comes with experience – knowing the defenses that are actually applicable to a case.
Thus, it was ever-so-frustrating recently when a well known partner, with trial experience, was retained to handle a subrogated products liability case in a small-SIR case.
A workers comp carrier was suing a retailer and the manufacturer whose product was involved in their insured’s accident. Because the potential damages were high, the insurer took control of the case immediately. The attorney they hired, being very busy, had an associate with six years of experience handling the case. No further word was heard from the partner for 8 months.
Shortly thereafter, the associate left the firm and it was announced that another associate had been assigned to take over the case. This associate had been licensed just two years ago, had no practical experience at all, no experience with the product, and evidently no experience in the law. The partner was apparently too busy to handle the case.
The associate filed an answer asserting twenty-nine defenses to an indemnity complaint. The retailer was not covered by the vendor’s endorsement, and in California, the vendor (retailer) is entitled to recover all attorney fees and damages if the manufacturer is found liable but retailer is not.
The attorney asserted as defenses that there was a release (there was none); asserted that the retailer had waived any right to indemnity; asserted that indemnity should be barred because of an act of god (not kidding). The attorney also asserted that the retailer assumed the risk.
When the client (RRS) complained, repeatedly, that this attorney was not qualified, and was asserting frivolous defenses, the client was told by another law firm hired by the insurer that the insurer had the right to select counsel, and the client had no say in the matter.
Of course, the client is the one who has to explain what evidence exists to support the defenses asserted by the attorney, and the incompetent attorney is the one who loses credibility. But if the attorney loses credibility – it is the client who really loses.
Sometimes Truth Prevails
Some insurance companies actually charge more for an SIR than they do for deductibles. They figure that if you mess up a case, they are the ones who pay for it above the retention amount. Add the difference in premium and the fees charged by a third party administrator, and it can sometimes seem that a self-insured retention is not cost effective.
But the assumptions are only valid if insurers actually properly control the claims, and if you did not have to pay for insurer mistakes through increased premiums.
We were recently involved in a case in Utah, where the plaintiff filed suit. The attorney for plaintiff discovered that the defendant had a relatively large SIR, and that Risk Retention Services was handling the litigation for the manufacturer. The attorney then went to the Risk Retention Services website. Before depositions commenced, the attorney called the manufacturer and asked to dismiss the case – on the merits. When asked why, our attorney was told that “We were looking at the numbers, and realized that while we think we have a strong case, you are going to make us fight every step of the way, and pay experts, and even then will not be offering us money. It is simply not worth the time and effort to chase a losing case. We looked up the manufacturer, and their risk managers, and this is not a fight worth having.”
ACTIVITY REPORT
Over the past quarter RRS closed 39 claims including four lawsuits and 35 non-litigated matters.
Two of the lawsuits were controlled by RRS. Both resulted in a dismissal of all claims, with no payment to the plaintiffs or their attorneys. The other two were controlled by insurers. One settled for $200,000, the other for $60,000.
In neither of the above-cases did the client have a consent clause that could have avoided the settlements.
Of the 35 claims, all were controlled by RRS. One of the claims involved a defective ladder (yes, it happens to the best of us). A 73 year old claimant was trying to remove snow from the roof while his bed-ridden wife huddled in the cold. As a result of the fall, he was unable to care for himself and received four weeks of nursing home care. We paid the outstanding medical expenses, Medicare lien, and nursing home care, plus $5,000 for pain and suffering and attorney fees. In total, that claim paid $35,000 – and we felt fortunate to have achieved that result.
Of the remaining 34 claims, 32 were closed with no payments to the claimants, including one with counsel who demanded $3.5 million before allowing the statute of limitations to expire after our denial of claim. The other claims had an average settlement of $320.
RRS also assisted in the resolution of a wind/tornado claim, where we helped our client recover $1,825,000 in insurance payments for damage to a roof.
THE HAMMER CLAUSE AND THE RIGHT TO CONSENT
(Are You The Hammer Or The Nail?)
Negotiating an insurance contract can be done fast, cheap, or right. Even if you have the proper coverage, your premiums will skyrocket if the insurer simply decides to settle cases despite your desire to contest the case. Even a slam-dunk defense verdict can be settled – unless you (through your agent) negotiate the requirement that you consent to any settlement.
The “right to consent” by an insured is almost never included in a general policy, and must be added by endorsement after negotiation. It is easier to obtain such a clause in an SIR than a deductible; and is easier still with a higher SIR. But regardless of whether you have a deductible, low SIR or high SIR, a right to consent may be negotiated. If it is not requested, it will not be included in your policy.
What Is a Right to Consent?
A right to consent clause is, simply, a provision that states that the insured has the right to consent (or not) to a proposed settlement. Not surprisingly, the most common use of consent clauses is in legal and medical professional liability policies. Lawyers (and doctors) do not want insurers to settle a case without their consent. And lawyers make sure that they have the right to consent before an insurer settles a malpractice case. It is, after all, their reputation at stake.
For the manufacturer, or even in the service industry, the same factors are at play. The insurer assigns an over-worked, under-qualified adjuster who does not know your product or business who, absent a consent clause, views your claim as an obstacle that can be overcome by settlement. But, like the lawyer, it is your reputation, and your product’s reputation at stake.
The Hammer Clause
If the insurer agrees to provide a consent clause, it will almost never come without consequences. The insurer views the right to settle as its right to get out of a case at a fixed cost (the amount of settlement).
If you were to consent, then the insurer’s cost would be fixed, there would be no additional defense costs, and the file would be closed. If you are unreasonable in your refusal to consent, the result can be tens of thousands of dollars in additional defense costs – and a verdict even worse than the settlement offered.
The insurer will try to protect itself from these results with a Hammer Clause. A Hammer clause, in essence, caps the insurer’s liability on a case to the amount offered. However, not all hammers are created equal.
The Sledge Hammer
When the insurer agrees to provide you with the right to consent, it will also provide the proposed language, including the hammer clause. The hammer clause it will first propose is what RRS calls the “sledge” hammer. It is so big, so heavy, that it effectively destroys the right to consent.
The Sledge Hammer clause provides that, from the moment the insurer would have settled the case (but for the lack of consent), the insurer’s liability for indemnity payments is capped at the settlement amount, and the insured becomes responsible for all future defense and related costs. If the case was within the SIR, no additional defense costs are applied against the SIR.
The effect of the Sledge Hammer can be seen in a simple illustration: Assume that the SIR is exhausted. The insurer wants to settle the case for $1,000,000. The client believes that it will win the case, and therefore refuses to consent. The defendant spends an additional $30,000 to get the case through trial and, as expected, gets a defense verdict.
Using the Sledge Hammer, the insurer will NOT pay the $30,000 trial cost.
The insurer will pay no costs whatsoever. Instead, the client has to pay the additional $30,000, and the insurer gets the entire benefit of the defense verdict.
Indeed, in our example, the insured basically takes on the cost of defense, AND the risk of n excess verdict, even though the SIR has been satisfied.
A Sledge Hammer clause essentially makes illusory the right to not consent. There is no direct benefit to the right, because savings in future premiums may even be offset by the defense costs.
You can instead negotiate a fair hammer clause. The fair hammer clause caps the insurer’s total liability to the amount of the settlement it could have settled for, but the insurer continues to pay defense costs up to the capped settlement amount. After all, had you settled the case, the insurer would have had to pay the entire settlement amount, but would have saved the defense costs of getting to verdict.
The Fair Hammer Clause
Essentially, a fair hammer clause provides that the insurer’s obligations are capped at the settlement amount. A couple of examples will help.
Using the previous example, the insurer could settle for $1,000,000. You refuse to consent. The insurer’s total liability is capped at $1,000,000. It costs $30,000 to get the case to trial. The insurer continues to pay defense costs. The effective cap on the insurer has been reduced by ongoing defense costs. As long as the verdict is less than $970,000, the insurer is on the hook for the entire amount.
Thus, with a defense verdict, the insurer pays all defense costs, but reaps the benefit (with you) of the defense verdict.
Similarly, if the verdict is adverse, but less than (in our example) $970,000, the insurer pays the entire verdict.
Further, at any point, you have the right to negotiate a settlement at no cost to you, provided that it is for less than the previously offered amount (plus ongoing defense costs).
So, if you settle the case for $950,000, and defense costs are less than $50,000 (in our example), you pay no additional money.
The hammer, remains significant: if you lose the case, and the verdict plus ongoing defense costs exceed the offered settlement amount, you are on the hook for the excess.
This is because the insurer has capped its liability at the amount it could have settled the case for.
The Take Away
To protect your risk, the mere right to refuse to settle provides substantial motivation on the insurer to work with you on a unified plan. But the insurer will know what a good consent (and hammer) clause consists of, and the ones that really give you no rights at all.
It is up to you and your agent to make sure that the consent clause (and hammer clause) is effectively negotiated to protect your interests.
One final benefit – the insurer, knowing you have a hammer clause, is much more likely to work with you and not work to try to settle a case without your consent. If it tries to work a settlement unacceptable to you, it cannot use your lawyer (this would create a conflict of interest for the lawyer, who is appointed to represent you). It is also much more difficult for the insurer to try to negotiate when it does not have the authority to close the deal. Thus, you have far more control over the litigation and the settlement than you would without the hammer clause.
ACTIVITY REPORT
Over the past quarter RRS closed 15 claims including five lawsuits and 10 non-litigated matters.
Three of the lawsuits were controlled by RRS. Of those, one resulted in a defense verdict with costs awarded to our insured, one resulted in a dismissal before trial with no payment to the plaintiff, and in one case, the matter was settled without the appearance of defense counsel for $2,500.
The other two lawsuits were settled by insurers. In both cases, despite spending the money necessary to prepare for trial and having a very strong defense, the insurer decided to settle shortly before trial. In one case, the insurer paid $55,000 and in the other $20,000.
In some respects, therefore, this was a better quarter than most for insurer-settled cases. RRS resolved three litigation matters, averaging $833 per case in indemnity, and the insurer settled two cases paying an average of $37,500.
In neither of the above-cases did the client have a consent clause that would have avoided the settlements.
Of the 10 claims, 9 were controlled by RRS. None were settled and no amounts were paid to any claimants. This excludes customer service exchanges of goods and services. The insurer for a small SIR client settled one claim for $5,500. The demand when the matter was tendered was $5,100 but the insurer ended up negotiating a higher settlement amount. Unbelievable.
THE CPSC INFORMATION DATABASE GOES ONLINE NEXT MONTH!
For the past year RRS has been telling clients that the CPSC database is coming and that time is fast approaching. Notwithstanding several delays the time has finally arrived. It is now scheduled to go active online March 11, 2011 and with it comes a new tool for plaintiffs and their attorneys to use against manufacturers, importers, and private labelers (“Manufacturers”). The searchable consumer product safety complaints database is the result of the Consumer Safety Protection Improvement Act (CPSIA) which Congress passed in 2008 in response to issues primarily related to imported products especially children’s toys that contained unsafe levels of lead. As usual in their zeal to address one high profile problem the legislators cast a wide net.
One aspect of the CPSIA of 2008 directs the CPSC to provide a way for consumer complaints regarding products subject to CPSC jurisdiction to be available in a searchable public database. The database will be searchable by manufacturer and product name. It is designed to be very user friendly. Reports of harm may be submitted by users of products and their attorneys, consumer groups and those who merely observe others using products. In other words, anyone, particularly anyone with an agenda can submit a report. This database is a veritable gold mine for some and minefield for many.
The database will contain “reports of harm” which can include any injury, illness or death or even simply the risk of injury, illness or death relating to the use of a consumer product. Reports of harm must include the following information: description of the consumer product; identity of the Manufacturer; description of the harm; incident date; category of the submitter (includes: consumers, governmental agencies, healthcare professionals, child care service providers and public safety entities); contact information verification and consent. There is no requirement that the CPSC verify these reports in any way. However, the CPSC is required to transmit the report to manufacturers within 5 business days of receiving it. The burden is exclusively on manufacturers to correct false and misleading reports.
Recognizing that some complaints are not well founded, the rules afford an opportunity for the manufacturer to respond. For the CPSC to consider the response before the complaint is made public, the rules require that the Commission receive a manufacturer’s input within 10 days of the CPSC sending the notification. Otherwise, the complaint becomes public regardless of its veracity.
Recognizing that the decked is stacked and the CPSC is holding all the aces it is imperative that Manufacturers register on the CPSC’s Business Portal. Doing so will allow Manufacturers to receive electronic notification of any complaint. Manufacturers that do not sign up will receive notice by mail, however, for a response to be considered it still must be received subject to the ten day rule. Registration is online and allows companies to designate primary and secondary contacts, and affords Manufacturers to opportunity to respond in the timeliest manner. Registration can be done at http://www.saferproducts.gov.
Even if a consumer’s report of harm is materially inaccurate, and a manufacturer submits a comment in a timely manner, the CPSC will still publish a report if no determination has been made before the ten day deadline. The Commission defines material inaccurate information to mean that is must be false or misleading and be substantial and important as to affect a reasonable consumer’s decision making about the product.
This applies to both consumer reports and to manufacturer’s comments.
Given the rules of this game, time is clearly of the essence. However, Manufacturers comments will be published with the consumer product safety complaint as long as the correct procedures are followed. The CPSC procedures requires that the comment must: 1) relate to specific information within the report; 2) state the unique identifier provided by the CPSC; 3) verify that the report and comments were reviewed by the manufacturer and are true and accurate; and 4) the manufacturer must affirmatively request publication of the comment.
Consistent with past Commission practice Manufacturers may request that portions of a report be designated confidential. Once again the burden is on the manufacturer who must follow specific procedures in order to gain confidentiality. The manufacturer must 1) specify which portions should be confidential and demonstrate harm if released; 2) submit the request prior to the 10 day deadline and 3) agree to assist the Commission in the defense of any judicial proceeding that thereafter might be brought to compel the disclosure of said information.
Needless to say this system will be onerous to many manufacturers and the potential for it to be abused will be great. RRS can help you meet the challenge of responding to CPSC reports in a timely and effective manner. As part of our special project services we will register your company with the CPSC and work with you to plan for and respond to complaints. Please contact Paul if you are interested in taking a proactive approach to managing this source of government sponsored public exposure.
ACTIVITY REPORT
Over the past quarter RRS closed 58 claims including six lawsuits and 43 non-litigated claims.
Four of the lawsuits were controlled by RRS, and of those three were dismissed without any payment to plaintiffs and their lawyers. There was one lawsuit which was settled. Plaintiff came to mediation and demanded $600,000. Mediation failed. We offered $2,500 as a statutory offer, so that we could recover all expert witness fees from plaintiff. Plaintiff accepted the $2,500 settlement offer.
The other three lawsuits were settled by insurers. In one product case, the plaintiff’s expert opined that there was a defect in the product, but that the defect was not related to the accident. The insurer settled for $300,000. In another products case, the clamant asserted that the ladder became unlocked and collapsed. The expert had no opinion as to how or why the ladder could become unlocked, but since that is what plaintiff said, the ladder must be defective. The insurer paid $185,000 to avoid trial in that case. In a premises/resort case, the insurer settled for $62,500. The claimant was snow tubing, and maneuvered her tube to try to go over a berm. Although told to slow down at end, she was finally successful in going over the berm … and she was injured. All standards were met, but the cost of trial exceeded the settlement amount, in the judgment of the insurer.
In none of the above-cases did the client have a consent clause that would have avoided the settlements. The May 2011 RRS Newsletter is slated to have a detailed article describing the importance of consent clauses and how you need to ask for them to be included in your insurance policy. We have yet to find a carrier offering a consent clause in its standard policy terms. As is generally the case in life, you won’t get goodies unless you ask.
Of the 43 claims, 38 were closed with no payment to the claimant. Five claims were settled for a nominal sum by minimizing the settlement amount and expenses. The average settlement amount per settled claim was $298.00 in the last quarter.
YOUR COMPANY NEEDS TO TESTIFY AT DEPOSITION/TRIAL:
NOW WHAT?
One of the certainties of business is that at some point, someone, is going to bring a legal action against your company. The federal courts and virtually all state courts allow for the deposition of corporate representatives. Federal Rule of Civil Procedure that governs this process is 30(b) 6. As such, corporate reps are often referred to as 30 (b) 6 witnesses. You may have already served in this capacity, but the lessons addressed below have been a pitfall for one or more of RRS’ clients’ testimony, and are not merely theoretical examples of problems that can arise.
Who Should Be The Corporate Representative?
In most cases, the company can choose its corporate representative. Although the plaintiff may require that a particular individual testify, they usually instead serve a corporate subpoena, which permits the company to select the person who will testify.
The deposition request generally includes a list of subject matters to be covered. This allows the company to identify the proper persons to testify. The representative should either have first-hand knowledge for each topic, or must learn about them.
The company is permitted to use separate representatives for each topic. If there is a topic regarding sales, the person to testify on this issue may be the sales manager. If another topic is, for example, quality control, the company might designate the production manager or an engineer.
At trial, you may decide to use one well-spoken individual to testify on all matters. But for a deposition, which will become a cold, black-and-white transcript, you may want to have several people testify in their areas of specialty. Before trial, the company designated corporate representative will have an opportunity to review the others depositions to familiarize him or her with all prior testimony in the case.
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So, You Have a Case in Canada, Eh?
Litigation in Canada is different. Some politicians tout its “Loser Pays” philosophy. But, Canada’s theoretical advantages as a litigation forum are undermined by practical realities. In the end, there are advantages and disadvantages but, without a doubt, it is “different.”
Loser Pays – Sort Of
Canada has long had a system of “Loser Pays,” much touted by tort reform activists. Indeed, this system has been successfully used by Risk Retention Services in two cases, one in which a gymnastics supply company recovered $50,000 from the plaintiff, and the other time successfully convincing the plaintiff to dismiss his case rather than face the possibility of paying the defendant’s attorney fees. These experiences are, however, far from the norm.
First off, the amounts of attorney fees that are ordered to be paid are up to the discretion of the trial court. It is not unusual for the trial court to order that the defendant pay virtually all of the plaintiff’s attorney fees, but only a modest portion of defense fees when a defendant prevails. There are mechanisms for maximizing the potential recovery, but since the Canadian system, in practice, is far less adversarial than in the United States (addressed below), these methods are rarely employed.
Even where the court does order the plaintiff to pay fees, this is not a real victory, for it is a rare claimant indeed who has any money to pay for such a judgment. Thus, while you get a court order requiring the plaintiff to pay, it often is a judgment proof order. These realities are explained to claimants by their attorneys, so unless the claimant has assets (including a home) the threat of pursuing costs is not always taken seriously.
The rarity of such a claim can be seen in our two cases (two different provinces), and was argued at mediation. The mediators in both cases had never before heard of a defendant actually holding out for attorney fees.
In the gymnastics case, the plaintiff, after much cajoling, agreed with the mediator’s recommendation that she dismiss her claim. The equipment company we represented refused to allow the case to be dismissed without the payment of most of the attorney fees. This tactic worked because the claimant, a daughter of a parliamentary MP, had assets.
Normally, however, the “Loser Pays” system merely increases the cost of settlement. The plaintiff almost never pays and does not take such a threat seriously. But the plaintiff attorney, from the outset, adds his fees to the top of the settlement demand (so a case that should settle for $100,000, would settle for $100,000 plus attorney fees).
Initial offers are thus unreasonably high, and even in mediation, the mediator will never try to discount the fees. Thus, the system is really a “defendant pays” attorney fees. Not surprisingly, this actually promotes litigation, rather than limits it. The attorney has nothing to lose by taking the case (most cases settle), and the recovery to the plaintiff is maximized, because attorney fees are routinely added to any settlement.
Less Work – More Money
In Canadian lawsuits, there are only pleadings (summons, petition, answers); and production of documents (not the documents others request, documents we want to use in the trial). There are also “discoveries”, the Canadian word for “depositions”.
Discoveries in Canada are limited to parties, and the party gets to pick who will testify. It is not unusual for the party to select an officer who knows nothing about the product or litigation. When a witness does not know an answer, an “undertaking” is demanded. This means that the party asking the question at the deposition requires that the party “undertake” to answer the question, or provide a document, that was not available at the deposition.
In practice, this means that very little information is provided at the discovery, and everything can be reviewed and answers drafted by the attorneys. This is similar to interrogatories in the United States. Meanwhile, absent a court order, there can be no depositions of witnesses including co-workers, family members or treating physicians. Experts, including physicians, provide bare-bones reports, and everything else is left to the imagination of the parties until trial.
Thus, there is truly far less work to be (or can be) done by the attorneys in Canada. Meanwhile, it takes years for a case to get to trial, and virtually no trials are heard by juries. In most cases, there is a right to a jury trial, but it is rarely employed unless the client demands it.
Still, litigation in Canada costs far more in Canada than the United States. Experienced trial lawyers routinely charge $400-$600 per hour, and these attorneys use lowly associates (typically $250-450/hour) to work up the case. There are letters between counsel, and numerous court status conferences (during which time nothing has been done).
The concept of bringing motions to compel is completely foreign, even when the limited discovery available is permitted. Normally, the discoveries of the parties have to be completed within 1 year, but the parties almost never get around to completing these discoveries on time. Further, there are delays in obtaining medical examinations due to the Canadian medical system’s shortage of doctors.
Thus, while less work is performed, the litigation often costs more to perform. Perhaps it is the delays and costs of litigation, but in Canada, virtually all civil cases are resolved short of trial, usually at mediation. This includes product liability cases that would normally be tried in the United States.
Typically, Canadian juries are more conservative and, remember, whether in settlement or verdict, the losing defendant must pay attorney fees.
In short, there are some advantages to the Canadian system. You will be required to do far less work to prepare for discovery, and experts will never be deposed. On the other hand, trial by ambush is always a difficult concept to get your hands around, and, even though far less work is performed, the attorney fees are routinely far higher than in most American jurisdictions.
The Canadian system has advantages, and disadvantages, but most of all, it is just – different.
ACTIVITY REPORT
Over the past quarter RRS closed 22 claims including 12 lawsuits and 10 non-litigated claims.
Four of the lawsuits were tried to verdict. In all four cases, a jury returned a defense verdict. One additional lawsuit was dismissed with prejudice.
Risk Retention was involved in the settlement of five claims. Three involved defective products, two were settled for the cost of defense or less. The litigation claims settled by RRS were settled for an average of $57,000.00.
Two claims were settled by an insurer. One involved a strained neck, which the insurer settled for $19,599 (this insured had a $20,000 deductable). The other was a ladder claim. There was a video of the accident that did not show the ladder ever failing, instead, it was consistent with our experts’ opinion that the plaintiff simply fell onto the ladder. Still, the insurer settled that claim for $500,000 at mediation.
Of the ten claims, two were settled for an average of $4,750 between them. The other eight were resolved without payment of any money.
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